Housing saw its stimulus peak in q2. Now for the year+ long hangover / “triple-dip” trade.

Rates, sentiment, and prices — in aggregate — have never been better and YoY comps never easier to beat — comping against a stimulus hangover/double-dip year — and still July Existing Sales was only up 2.3% YoY. For the remainder of the year — and through July 2013 at least — YoY comps will be negative, as last year’s Twist ops and lack of rain/snowfall benefit turn into a headwind.

Bottom line, this year’s housing stimulus cycle (once again mistaken by WallSt, the media and bloggers for a “durable recovery” with “escape velocity”; (a full blown “recovery” without ever stopping at the bottom for a while) is now over and the stimulus hangover begins. This is a repeat of the 2009/2010 home buyer tax credit stimulus cycle followed by the 2h’10/1h’11 hangover/double-dip.

The Sad Part About This

The sad part about the upcoming stimulus hangover / “triple-dip” event is that it didn’t have to turn out this way. The Fed did its job. By creating negative real yields and forcing mortgage rates to levels that not only forced first timers in all at once (very much like the tax stim of 2010) but forced institutional investors into rental property investment in search of yield, they created more than ample demand.

But the relentless bank and gov’t foreclosure can kicking — banks in order to kick losses and gov’t to get re-elected — on the 5 to 6 million “*rolling” distressed loans IN ADDITION TO the re-leveraging of 5 to 7 million high-risk legacy loans into higher risk / leverage new-vintage loans (aka loan mods) took away millions of units of supply that would have otherwise been purchased by first timers and investors over the past year.

*Shadow Inventory Note…I say “rolling” because “shadow inventory is not static. Most “analysis” I read make no mention of this rather only talk about how quickly it will clear based on 400k monthly existing home sales. But they have their numerators and denominators all wrong. Shadow Inventory increases by the number of new “60 day lates” and “mortgage mods” granted each month — both have a 75% chance of foreclosure in 2 years — and decreases by the number of “distressed” existing home sales per month. Because there are roughly 130k 60-day lates + mods and only 110k distressed resales per NAR, shadow inventory is growing by abut 20k units per month right now.

In short, if foreclosures and short sales had been running at 2+ million a year like they should have been all along house sales would have been 50% to 75% greater this year, “escape velocity” may have been reached, and this would have gone a long way into the ultimate de-leveraging of 20+ million legacy years homeowners that needs to occur before this housing market ever finds a “durable” bottom.

But because it all continues to be about can kicking, housing will go into a “triple dip” in the next couple of quarters, which will last a couple of quarters at which time rates will be forced under 3% in order to recreate the same conditions that came on 3.5% this time around.